Solving the Working Poor

By Deane Barker tags: society, social-justice, economics

My wife and I watched an Oprah episode last night about the “working poor.” These are the people trying to get by and support their families on minimum wage. Oprah trotted out person after person trying to make it on $5.15 an hour and up. One woman had to feed three children on $30 a month. It was absolutely heart-breaking. These people are working 12 to 16 hour days, with no light at the end of the tunnel. They have no health insurance, and no paid sick time. They are literally one bout of the flu away from being out on the street.

But, how do you solve this problem? The author of a book called “The Betrayal of Work: How Low-Wage Jobs Fail 30 Million Americans and Their Families” was there and she proposed two things: raising the minimum wage and universal health care.

I agree that both things would help, but the bottom line we have to understand is that if the poor are to get richer, that money has to come from somewhere. And it’s going to come out of the pockets of the rich and comfortable.

Consider –

How much of a raise in the minimum wage do we need? it’s $5.15 an hour right now. Most of the people interviewed weren’t actually making minimum wage. Rather, they are a few dollars above it – $7 or $8 an hour, maybe.

To really make a difference, we’d have to jack the minimum wage quite a bit. A bump to $8 probably isn’t going to help – that’s still just $16,000 a year. About $1,000 a month after taxes.

So, let’s get more drastic.

Overnight, let’s raise the minimum wage to $15 an hour and require employers to give health insurance to everyone. This would certainly help a lot of people in that range. But, where does the money come from?

Take Wal-Mart, for example. If they suddenly had to start paying all their employees a minimum of $15 an hour, their prices would shoot up 50% overnight. The same goes for Exxon when they have to start paying gas station attendants $15 an hour. You think gas prices are high now?

If you think about it, the middle class and the wealthy consume a lot of things that are created and serviced by the low end of the pay scale. We shop at Wal-Mart, we buy gas at Exxon, we stop by McDonalds for coffee, we have our car washed and vacuumed, etc.

So, the minimum wage triples, and all these companies that see their payroll shoot upwards start raising their prices. Now, suddenly, my paycheck doesn’t go as far as it did before.

So now I’m pressuring my boss for a raise, and so is everyone else – upward pressure on wages gets stronger and stronger as everyone needs more money to maintain their quality of life.

So by raising wages for the working poor, we’ve created a ripple effect that cause wages to up for the middle class. Thus, prices again go up to match.

The end result is that inflation would skyrocket. The price of goods and services that the working poor needs to survive would start to climb and eat away at the initial increase that was designed to help them in the first place.

There are a couple of ways a massive wage increase could work, but neither are even remotely realistic:

  1. If the big, massive companies that stand to have their payroll jacked up all got together and said, “Look, let’s just take it in the shorts. We make enough money – let’s not raise prices to make up the shortfall.”

  2. If the middle class decided, “We’re willing to lower our quality of life to help the working poor. I’ll reduce my expenses and get by on less so that I don’t contribute to inflation by demanding a raise.”

Obviously, neither of these scenarios is going to happen.

My family had dinner at IHOP tonight, and I took a lot of interest in how hard our waitress worked. She was a woman in her 50s, and based on the way she worked and carried herself, it looked like she’d been waiting tables for a long time.

I tipped her well.

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